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This paper proposes a block based image authentication scheme for gray scale image through embedding a digital watermark by quantizing DWT coefficient of the image. The proposed method is designed to detect minute modification of an image and to identify tampered location of the image. To embed the watermark mid frequency band of a second level DWT transform was used. An approximation of the original image based on LL band was stored as a recovery mark for restoration of the image. Watermarked image has achieved a good PSNR value of 40 dB compared to original cover image. Restored image quality was also very good with a PSNR of more than 35 dB compared to unmodified watermarked image even when 25% of the received image is cropped. Thus, the proposed method ensures a good balance in the fidelity of the watermarked image and the quality of the restored image.